Growth, Employment, Poverty and Inequality in Tanzania.

Author:Kinyondo, Abel
Position:Report
 
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Introduction

An indication of how much Africa is lagging behind can be found in an excellent study by Adam Przeworski (2004:169) who noted that "according to Gallup, Sachs and Mellinger (1998), African income in 1992 was the same as that of Western European in 1820" when "the average per capita income in the tropical zone amounted to 70 percent of that in the non-tropical zone" (Przeworksi, 2004:169). So, the per capita income of the tropical zone, which includes Sub - Saharan Africa, that was fairly close to that of the developed world in 1820 needed 172 years to reach the per capita income that the developed world enjoyed in 1820.

It has to be noted that Africa has been receiving a significant share of aid per capita. However, aid has been by and large detrimental to Africa's development and poverty reduction because aid money provided the continent with a wrong set of incentives, distorted the functioning of the market forces, and fed into that corruption (Pelizzo et al., 2016) that is often regarded as one of the main reasons why Africa has lagged behind in terms of socio-economic development and poverty (Moyo, 2009). The fact that Africa has lagged behind in terms of development is usually used to explain why poverty is so pervasive in the continent. Moyo's Dead Aid book (2009) basically suggests that by failing to speed up the development process, aid fails to make a significant contribution to poverty reduction.

There is no doubt that there has been in the mind of the international community that economic growth is a necessary condition for reducing poverty. (1) Wealth must be created before it can be distributed. But recent years have alerted scholars and practitioners alike about the fact that development is a necessary, but, in itself, insufficient condition to reduce poverty. Economic growth reduces poverty only if there is no increase in the level of inequality.

The recognition that development reduces poverty only if coupled with a reduction of income inequality, has led some scholars to refine Moyo's argument. Aid money fails to reduce poverty not because it fails to promote economic development, to promote wealth, but because it fails to reduce inequality. According to one of the most insightful analyses that we have read on this topic, aid money stimulates economic growth and the creation of job, but the job it creates are not good and as a result aid money ultimately fails to make a meaningful contribution to poverty reduction (Page and Shimeles, 2015).

The purpose of the present paper is to analyze the nexus between economic growth, employment, inequality and poverty in Tanzania, although it is the second largest economy in the East African Community and the twelfth largest in Africa. There are three basic reasons why we believe Tanzania represents an interesting case. The first is while it is clear and well documented that Tanzania has enjoyed rapid economic growth for most of the new millennium, it is not clear whether, how and to what extent this economic growth affected the employment, poverty and inequality in the country. The second reason is that while several studies have been produced on growth, poverty and inequality in various parts of Africa, in recent years, Tanzania has been somewhat neglected in the literature and, as a result, all the existing studies on poverty in Tanzania are somewhat outdated (Bagachwa, 1994: Lugall, 1995a; Lugalla, 1995b). (2)

In the first section, we will review the African literature on poverty in Africa pointing out that there seems to be a consensus about the fact that while growth may lead to employment, its impact on inequality and poverty reduction is somewhat unclear. In the second section, we discuss Tanzania's economic performance on the basis of its GDP growth, GNI per capita, and several other relevant economic indicators. The basic claim advanced in this section is that for most of the new millennium, Tanzania has enjoyed very high growth and that it has been able to generate wealth as evidenced by the increase in the GNI per capita but also in the number of millionaires.

In the third section we analyze the relationship between economic growth and employment and, in doing, we are able to show that the expansion of the Tanzanian economy has gone hand in hand with the expansion of the labor force--a finding which is consistent with what Page and Shimeles (2016) had reported in their study. In the fourth section, we investigate how economic growth and the expansion of the labor force have affected poverty and inequality in the country. In doing so, we find that the expansion of the economy and of the labor force was instrumental in reducing poverty but not in reducing the level of income inequality. This finding is, in some way, rather exceptional. In fact, while the international community has generally held the belief that poverty reduction occurs only when economic growth is coupled with a reduction (or at least not an increase) in the level of inequality, given its strong economic growth Tanzania was able to reduce poverty without reducing inequality. (3) Future research will have to discuss whether Tanzania is a somewhat exceptional case or whether, when growth is fast enough, it can reduce poverty regardless of what happens wo the level of inequality. Finally, in the fifth section we draw some tentative conclusions.

Poverty in Africa as discussed by African Scholars

Few topics in social sciences have received more attention than poverty. Some studies have attempted to theorize what poverty is (Sen, 1981), other have discussed instead how it could be measured (Foster et al. 1986; Sen, 1976), a third line of studies has instead investigated the determinants of poverty, while a fourth stream of scholarship has focused instead on what could be done to end poverty (Sachs, 2008).

The debate on poverty has been a rich one both globally and regionally. If one were in fact to review the contribution of African scholars to the study of poverty, one would discover a fairly rich, very interesting and rather sophisticated literature both in terms of geographical scope and in terms of topics covered.

Bado (2012) discussed poverty reduction in Burkina Faso, Mussa (2014) analyzed poverty and inequality in Malawi, Ali (2000) analyzed the evolution of poverty in Nigeria, Ballon and Duclos (2016) analyzed the severity of poverty in Sudan and South Sudan, Mulenga and Van Campenhout (2008) underlined the importance of taking population movements into consideration when studying poverty, Odusola (2017) explored the nexus between poverty, economic growth and inequality, while Shimeles and Verdier-Chouchane (2016) discussed the role of education in reduicing poverty.

Several studies had a more specific focus on poverty reduction. Some explored the nexus between growth and poverty reduction to discover, as Duclos and Verdier-Chouchane (2011) reported in their study, that while growth had been pro-poor in Mauritius, it had been almost anti-poor in South Africa.

Other studies, such as Anyanwu and Erhijakpor (2010) documented whether, how and to what extent remittances contribute to poverty reduction, while Page and Shimeles (2016) investigated the relationship between aid, growth, employment and poverty reduction and formulated some considerations that are perfectly consistent with the evidence will be presented in this paper.

It is not difficult to understand why the scholars from a region plagued by poverty (and inequality) have so much interest for economic growth, development, inequality and poverty alleviation. If one identifies the determinants of poverty, one can also devise some evidence-based policy measures that could contribute to poverty alleviation and eradication. Unsurprisingly African scholars have widely discussed why there is poverty...

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